Energy is riding the rotation wave, Sea Ltd raises FY20 outlook

Energy is riding the rotation wave, Sea Ltd raises FY20 outlook by Michael McKenna
Energy is one of the best performing sectors in equities since the news of better than expected Covid-19 vaccines from Pfizer and Moderna which have created a rotation out of growth and momentum, and into value and procyclical sectors. We are also taking a look at Sea Ltd which has reported strong revenue growth in Q3.

The global energy sector has responded aggressively to the news about very effective Covid-19 vaccines from both Pfizer and Moderna, discounting a return to normal energy markets as mobility activity returns to more normal levels in 2021. The global energy sector is up 27% driven by a positive response in crude oil prices and positioning as our recent commodity note talks about.

In a longer and relative perspective to the global equity market the energy sector is still down 60% since the recent relative peak in January 2017. The recent move has closed the relative gap by 17% but there is still long way for energy markets to recover their position in financial markets. The energy sector is only 2.3% of S&P 500 and 5.1% of the global equity market including emerging markets. The move into energy stocks is part of a bigger move in equities from growth and momentum stocks into value and pro-cyclical sectors. The big question is whether this rotation will continue and whether 2021 could become the big comeback year for energy stocks that have suffered from Covid-19 and investors’ souring sentiment on black vs green energy.

Topics: Equities Energy (Sector) Technology Corporate Earnings

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